Just 1 billion dollars? Why did inverter manufacturer Guiruiwat sell itself to Blackstone?

In the past two years, selling assets has become an inevitable choice for many well-known companies to reduce debt, deleverage, and cope with liquidity crises. Although sometimes the prices may be rock-bottom, as one industry leader puts it, if there are still people willing to buy your assets and you can sell them (note that this has a double meaning), it's not a bad thing.

However, the above phenomenon mostly occurs in industries such as real estate, finance, and the internet. In the rapidly developing photovoltaic inverter industry, it has never happened before. And now, Growatt is preparing to sell itself to Blackstone for $1 billion. Why is this happening?

Why is Growatt selling itself?

Yesterday, there was a major news in the market - Growatt, the fourth-largest global inverter company, may be acquired by the renowned investment group Blackstone for an estimated value of $1 billion!

According to Bloomberg, a well-informed source revealed that Blackstone is considering acquiring Growatt. As this information is currently confidential, the source requested anonymity from Bloomberg. Currently, Blackstone is in negotiations with Growatt.

The source also stated that the deliberations are still ongoing and it is uncertain whether the transaction will take place. Furthermore, the source added that there may be other potential acquirers interested in Growatt. Blackstone declined to comment on this matter, and Growatt has not responded either.

Carbon Catcher has some insights into some tips for cross-border mergers and acquisitions. This is how business works. When one party is too aggressive in bargaining or negotiations reach a deadlock, the seller will release information privately, stating that certain assets are up for sale, in order to attract more buyers in the market and also put pressure on the current potential buyers. Although both parties will sign a confidentiality agreement before conducting various due diligence, bargaining, and other processes.

Of course, when it comes to bargaining, the buyer will definitely provide various reasons for a lower price. For example, if Blackstone were the buyer, they would suppress the seller by saying that the warehouses in Europe are already full and cannot accommodate more inventory; or that there may be policy risks in the future for household energy storage and inverters from China in markets such as Europe, the United States, and Australia (key minerals, grid security related to inverters), or that Growatt's actual shipments in Brazil and Italy are not as high as previously advertised or as reported by third-party organizations, and so on.

Therefore, Carbon Catcher speculates that this so-called "anonymous source" may actually be Growatt itself, which is unknown at this time. In a bearish market, with asset prices plummeting, even if it is true, it is a desperate move - after all, the valuation from one or two years ago would not be so cheap.

According to the Hong Kong Economic Journal's report on May 29th this year, Growatt, the world's third-largest supplier of photovoltaic inverters, which had already conducted a listing hearing on the Hong Kong Stock Exchange on May 14th, has postponed its listing plan due to the challenging market environment.

(Source: Image) According to informed sources from foreign media at the time, market investors were optimistic about the global market size and high-growth business of Dolphin Research, but they were sensitive to pricing. Originally, Credit Suisse and CICC were the joint sponsors of Dolphin Research, while J.P. Morgan and CMB International were the overall coordinators.

In mid-May of this year, Dolphin Research conducted a pre-roadshow, and the financing scale was originally expected to be reduced from $1 billion to $300-400 million, one week later, on May 22. It can be said that this directly hit the bone and definitely fell below Dolphin Research's expectations.

As we all know, the listing process in Hong Kong is much faster than in the A-share market, and it generally does not exceed one month from the hearing to the listing. In other words, under normal circumstances, Dolphin Research should have been listed no later than June of this year. However, up to now, nearly four months have passed, and the rumors of the company's postponement (actually abandonment) of the IPO have been confirmed.

It is conceivable that Chairman Ding Yongqiang of Dolphin Research was disappointed and angry after the pre-roadshow in May, when investors were unwilling to make an offer and the Hong Kong capital market no longer seemed as attractive as before. Dolphin Research had to find another way.

As for listing in China, Dolphin Research has tried it before. Now that the IPO has tightened in stages, even if it can be listed, it will have to wait in line for at least one or two years, unless Dolphin Research is like Trina Solar, with the confidence or other strength to directly list on the A-share main board.

So, what else is there now that is more ideal than selling to Blackstone or other buyers and entering the overseas market in the future?

Did Blackstone find a treasure?

On August 14th this year, Wood Mackenzie, a global renewable energy, energy, and energy insight company, released the final statistics:

The top five manufacturers, Huawei, Sungrow, Ginlong Solis, Dolphin Research, and GoodWe, will ship more than 200 GWac in 2022, accounting for 71% of the total global PV inverter shipments, an 8% increase from 2021. Among them, Huawei's shipments increased significantly by 83%. Meanwhile, Sungrow's shipments increased by 56% during the same period.

The Wood Mackenzie report also pointed out that the top eight suppliers in 2021 maintained their rankings in 2022, but only Ginlong and Dolphin Research swapped positions, with Dolphin Research dropping from the third place in 2021 to the fourth place. It is believed that this may also become a bargaining chip for Blackstone to lower the price—after all, why did you drop?

But in any case, if Dolphin Research is sold for only $1 billion, it is still a "treasure."

In the A-share market, Jinlang Technology, which is close in size to Dolphin Research, has a market value of $28 billion, and GoodWe is $21.4 billion—both are more than three times more expensive than the rumored price of $10 billion. In the current market where equity investment is becoming more and more active, there are basically no investment opportunities with a threefold difference between the primary and secondary markets. China A-shares inverter valuation is very high. In addition to the industry's high prosperity and growth, there is also an overseas sample that can be referenced. Enphase, a US microinverter and energy storage inverter company listed on NASDAQ, has a market PE ratio of nearly 30 times. In 2022, Enphase's revenue was $2.331 billion and net profit was $397 million.

According to the updated prospectus disclosed by Guiruiwat, the company's revenue in 2022 was $7.093 billion, and net profit was $1.213 billion. Based on the latest exchange rate, these figures account for 41.8% and 42% of Enphase's revenue and net profit respectively. Currently, Enphase's market capitalization is as high as $16.68 billion. If Guiruiwat is only valued at $1 billion, it is less than 6% of Enphase's market capitalization!

If we look at this deal in this way, isn't it like MoShi has found a big wallet?

It is worth mentioning that in June 2022, IDG Capital invested 900 million yuan in Guiruiwat and obtained a 6.52% stake. Based on this transaction price, Guiruiwat's valuation before its IPO in Hong Kong has reached 13.8 billion yuan.

In other words, from the perspective of market value, Guiruiwat is worth at least $2-3 billion.

Blackstone, a hundred billion dollar investment in new energy

Blackstone Group (NYSE: BX), also known as "Baishitong Group," is the world's most famous private equity investment and investment management company. Its asset management scale is not small, it is one trillion dollars, and it has numerous well-known investment cases. Among them, nearly $300 billion is used for PE equity investment. In July of this year, Blackstone became the first company in the world with an asset management scale exceeding one trillion dollars.

Blackstone is highly committed to carbon neutrality and new energy. On its official website, there is a prominent declaration: "From now until 2050, achieving the global carbon reduction target requires an average annual capital expenditure and investment of $45 trillion. We believe that the capital we invest can help leaders in the energy industry promote energy transformation."

According to Blackstone's Managing Director, Juergen Pink, Blackstone will invest $100 billion in the renewable energy sector in the next 10 years.

On June 21st of this year, Blackstone Group (BX-US) once again added $1 billion in equity investment to renewable energy company Invenergy Renewables Holdings, bringing its total investment to $4 billion.

This company may be unfamiliar to the Chinese photovoltaic industry, but it is likely to be the largest partner of Longi Green Energy in the United States. According to the company, Longi Green Energy will cooperate with them to build a 5GW component factory in Ohio, USA, with Invenergy investing $600 million. Last year, Invenergy entered the US community solar market with the goal of developing 3GW of renewable energy by 2030.

Invenergy is just one project in Blackstone's photovoltaic field. In addition, in August of this year, Blackstone Investment and the Netherlands-based Esdec Solar Group plan to seek an IPO on the NYSE, with a valuation of over $5 billion for this solar company.

In recent years, Chinese inverter companies have faced increasing local policy risks in North America and Australia.

As early as 2018, after the US-China trade war broke out, Huawei's inverters were boycotted by the United States on the grounds of grid security. Now Huawei has completely abandoned the US photovoltaic inverter market. Following the US's exclusion of Huawei, some Japanese photovoltaic companies quickly followed suit and stopped cooperating with Huawei inverters.

In July of this year, Sungrow, Huawei, GoodWe, and ABB were criticized in Australia. James Paterson, a member of the Australian opposition party and shadow minister for cybersecurity and home affairs, believes that over 60% of Australia's photovoltaic inverters come from China. These inverters can be remotely controlled through the network. If they are attacked by hackers or taken over by terrorist organizations, not only the photovoltaic power plants, but even the entire Australian power grid could be paralyzed. This is completely groundless.

In any case, the reality is that some overseas forces have gone to great lengths to counter China, just like the EU's investigation into low-priced Chinese new energy vehicles yesterday.

Carbon Catcher believes that if Blackstone invests in Grewatt, the best option may not be a full acquisition but a controlling stake. This way, the Grewatt team will still have the motivation to continue their work, and the early-stage investment institutions can choose to completely exit in this round, or dilute their holdings and gradually exit after Grewatt's IPO in the future.

In this way, whether Grewatt establishes factories overseas in the future, further expands and consolidates the European and American markets (especially the US residential market), or seeks listing on overseas capital markets in the future, it could be a win-win situation.

Of course, there may still be uncertainties with this project, such as whether it will ultimately obtain approval from the Chinese and US Departments of Commerce. Additionally, existing US inverter companies that have been scared off by Chinese inverter companies, having continuously lost market share over the years, could become important obstacles to this project.